GNPC embarks on expenditure cuts – As oil price drops to 21-year low

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With oil prices crashing to more than a two-decade low as the coronavirus pandemic hits global demand for the commodity, the Ghana National Petroleum Corporation (GNPC) is cutting costs to remain efficient and financially sound.

One of the measures the corporation has adopted is to focus more on its core activities as related to its overall expenditure pattern with prices drop to US$27.

For instance, the corporation has reduced its Corporate Social Investment (CSI) budget from US$55 million for the year under review to US$35 million.

The Chief Executive Officer of GNPC, Dr K.K. Sarpong, disclosed this in an interview with the Graphic Business on April 15 in Accra.

Dr Sarpong said crude oil prices on the international market had dropped sharply, which would lead to a resultant drop in the corporation’s revenue for this year.

“We have to take some prudent measures to ensure that we do not run into any debt. We have carefully analysed our operations and managed to cut a few things so we keep within budget,” he added.

He noted that even within the reduced budget for CSI, certain critical projects would be undertaken and that included building of schools and healthcare centres in selected deprived areas to enable the people to also benefit from the country’s oil resources.

GNPC core functions

The corporation has among its functions to promote petroleum exploration activities, to appraise existing petroleum discoveries and to ensure that Ghana benefits the most from the development of the country’s petroleum resources.

The corporation promotes the training of Ghanaians in petroleum-related activities and ensures environmental protection in all petroleum-related activities.

Hedging concerns

In the last couple of weeks, there have been calls for the government to hedge oil prices to guarantee the revenues to accrue to the State at the end of the year.

Dr Sarpong said much as hedging brought certainty, the timing now was not the best because the prices had fallen too low.

He was optimistic that with Russia and Saudi Arabia, as well as the intervention proposed by President Trump to get prices lifted, the price of the black gold would rebound.

Dr Sarpong said while at that, there was the need for the government to take a firm stance on the way forward as to which direction was best for now.

Staffing

Dr Sarpong said critical staff were still working on a daily basis from the offices while the remaining were working from home.

“When necessary, we call them to come in to support but ideally, they are also working from home,” he said.

He explained that the corporation’s core activities were not being affected because those performing essential services to get its operations on track were working under strict social distancing rules while other safety measures meant to protect them from the COVID-19 were also in place.

Global blues

Demand for crude has dropped by a third, forcing global producers to make unprecedented output cuts that have left markets awash with so much crude that even the Middle East’s main oil trading hub has run out of room to store unwanted barrels.

Bloomberg reported that “terminal operators at Fujairah in the United Arab Emirates say they’re turning down requests from traders and refiners to store crude and refined products, whereas a year ago they had ample space. The port’s 14 million barrels of commercial crude storage capacity is just a fraction of what Saudi Arabia and Abu Dhabi provide for their state oil companies”.

Without tanks to lease, traders face costly constraints on their role as matchmakers who link a specific supply here with a willing buyer there. The global oil glut is making it harder for traders to even put imbalances in the market, and the plunge in crude, down about half this year, is making matters worse.

A historic multilateral deal to lower global oil production and stabilise prices, led by record cuts from Saudi Arabia and Russia, is at risk of collapse after Mexico refused to sign up.

The impasse, according to a Bloomberg report, casts doubt on efforts to revive the market from a debilitating coronavirus-induced slump. The deal by the coalition of nations known as OPEC+, which dwarves previous interventions and has been sponsored by U.S. President Donald Trump, would end the price war between Riyadh and Moscow that helped pushed oil down to the lowest in almost two decades.

At a press conference on April 9, Mexican President Andres Manuel Lopez Obrador said he had talked to President Trump and had reached a deal with OPEC+, but it wasn’t immediately clear if his position had shifted.

Saudi Arabia made the whole deal dependent on Mexico’s participation, pinning an accord to remove more than 10 per cent of global production from the market on an argument about a few hundreds of thousands of barrels. But Riyadh’s Energy Minister, Prince Abdulaziz bin Salman, is determined the burden of cuts must be shared as widely as possible.

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